Tag: U.S

Please note that this podcast episode was recorded on April 1, prior to the latest updates on tariffs. Motley Fool analyst Bill Barker and host Ricky Mulvey talk about:

• The effect of tariffs on Harley Davidson.
• Whether the motorcycle manufacturer is a value trap.
• OpenAI’s recent funding round, which values the hybrid nonprofit at $300 billion.

Subsequently, Motley Fool host Alison Southwick and personal finance expert Robert Brokamp discuss strategies to safeguard your finances during a recession.

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A complete transcript is available below.

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This video was recorded on April 01, 2025

Ricky Mulvey: It was the night before Liberation Day, and the markets were buzzing. Welcome to Motley Fool Money. I’m Ricky Mulvey, joined today by Bill Barker. Bill, how are you planning to celebrate the eve of Liberation Day? Any exciting plans?

Bill Barker: I think I’ll enjoy a regular night’s sleep and wake up ready for the day ahead. Actually, the excitement doesn’t really start until after market close. You have another full day tomorrow to enjoy before discovering the news.

Ricky Mulvey: I’m just bursting with excitement to find out. Many people believe Liberation Day is merely about consumerism and gifts, but there’s a deeper significance. What is the true meaning of Liberation Day? That’s what the markets are eager to learn. The Washington Post reported that a proposal includes a 20% tariff on most imports, but a country-by-country reciprocal approach is also being considered. Ultimately, the plan remains uncertain. Is there a scenario where the markets might react positively to tomorrow’s news?

Bill Barker: Absolutely. If the announcement is that it was all just a joke, the markets would celebrate that. However, short of that, given that 20% is the number currently circulating, if the tariffs announced were significantly lower than that and included assurances that favorable deals were already in place, that this would be temporary and aimed at finalizing trade agreements, then yes, that could be news the markets would welcome. Nonetheless, I do not expect such outcomes.

Ricky Mulvey: I attended public high school, Bill, and sometimes there was a sense in the cafeteria right before a fight. You could feel the tension and hear the gossip, like a showdown might occur. It appears the financial news media is covering Liberation Day in a similar way. Investors may want to brace for a volatile movement either up or down tomorrow. While considering a scenario where markets might embrace the news, what about a scenario where they react negatively and head for the exits?

Bill Barker: If the announcement states there’s a 20% tariff applied universally across the board, and anyone retaliating would face further escalation, that moves us into the worst-case territory. It would be like daring your opponents to react in a logical and rational manner, which could lead to a wider conflict. Now, that would indeed be a concerning scenario. The extent to which we experience such outcomes will be clear in less than 36 hours.

Ricky Mulvey: This is the first time I’ve heard “fussy” and “war” used interchangeably, and I appreciate you introducing that perspective.

Bill Barker: You’re welcome to this narrative.

Ricky Mulvey: Good point. I agree it’s important to keep things light, but sometimes the topics get serious, and humor doesn’t always resonate.

Bill Barker: Often, when discussing trade, the term “war” is mentioned and has almost become a trademarked term. The narrative writes itself.

Ricky Mulvey: In the long run, here’s how some investors are responding. According to a Bank of America survey reported by Bloomberg, fund managers now show a 23% underweight position in US stocks—an alarming drop of 40 percentage points since the last survey. A couple of weeks back, I spoke with Richard Bernstein, head of Richard Bernstein Advisors, about this long-term deglobalization trend. We see many investors shifting from US stocks to international equities to diversify away from American markets. Are you personally following this trend, Bill? Are you considering adding international stocks and ETFs to your investments?

Bill Barker: Yes, I have sustained my international stock holdings percentage and even increased it in light of how US stocks have been valued, which was true before any recent disturbances. They have been trading at historically high levels that imply strong future cash flows. I believe truly above-average growth is already baked into US stock valuations. In contrast, international stocks have presented better pricing because they haven’t fared well relative to US stocks for years. When someone claims they are increasing their international holdings, they might also be trying to take credit for trends that have already occurred. Everyone knows international stocks have outperformed the US significantly this year. If they say, as I just did, that they have been doing that, they are attempting to claim credit for outperforming the market, which may not accurately reflect their position.

Ricky Mulvey: Let’s discuss a company that appears to have little to no growth priced in, front and center in the trade wars (small lowercase ‘tm’). That would be Harley Davidson, known for its manufacturing in the United States and some international sales. A Wall Street Journal article discusses how tariffs are already impacting Harley, referencing the Road Glide, a touring motorcycle model with a starting price of $28,000 in the US, but priced at approximately $77,000 in Denmark due to a 25% value-added tax and a staggering 150% luxury tax. If the new EU tariffs come into play, that price could skyrocket to more than $100,000, amassing a total of $124,000. Harley has certainly found itself in turbulent waters for various reasons, tariffs being a major player. However, how is Harley performing in the international markets? How crucial are Europe and Asia to the company?

Bill Barker: Last year, Harley sold around 94,000 units in the US compared to 151,000 globally. Approximately 60% of their sales come from the US, with some in Canada and others distributed across Asia and Europe. They don’t have much presence in Latin America. Harley remains a significant US brand but has become somewhat of a target due to its strong association with American culture, just like certain whiskey brands; they often end up in the headlines regarding specific tariffs in Europe, which affects their international sales. Given the current tariff levels, I’m surprised Harley is still managing to perform as well as they do globally, particularly in places like Denmark.

Ricky Mulvey: Personally, I’m not interested in motorcycles. No offense to motorcycle enthusiasts; I just prefer my car. I can’t fathom spending over $100,000 on a bike that retails for under $30,000 elsewhere.

Bill Barker: Tariffs serve to protect local brands like BMW and other European manufacturers. Headlines surrounding them illustrate the argument that some tariffs imposed by allies can appear blatantly unfair to specific US companies, and there’s substantial room for negotiation around these points. The question remains whether implementing a 20% tariff across the board is an effective negotiation strategy, and the market may express its sentiments on this tomorrow.

Ricky Mulvey: This has been discussed by CFO Jonathan Root from Harley Davidson when addressing Congress, pointing out that foreign markets pose significant challenges for his company. He noted that motorcycles imported into the US face a maximum tariff of just 2.5%. They’re navigating a very uneven playing field internationally where they thrive domestically. However, could retaliatory tariffs or a trade war selectively benefit a company like Harley Davidson, which could potentially face fewer competitors in the US market and gain negotiating leverage for increased bike sales abroad?

Bill Barker: It’s possible, but I wouldn’t place my bets on it. If Harley strengthens its US position, it currently holds about 37% of the heavyweight motorcycle market domestically and was once a dominant player with a 50% share prior to COVID. They’ve been losing market share to competitors. If tariffs could bolster their domestic strength, it raises the question of whether that could compensate for reductions in their international sales—your guess is as good as mine. To add to the complexity, the increase in steel and aluminum tariffs raises production costs for Harley here. A significant portion of their input costs is already subject to tariffs, which puts pressure on their margins, making it difficult for Harley to simply pass these costs onto consumers while maintaining their profit margins.

Ricky Mulvey: You’re not the only investor who appears pessimistic about HOG, Harley Davidson’s ticker symbol. Its multiples have dropped from about 10 or 12 times trailing cash flow to just three times over the last 12 months, and they reported an operating loss in their latest quarter. Additionally, the market cap has shrunk from over $6 billion just a few years ago to approximately $3 billion today. Beyond tariffs, CEO Johan Zeitz highlighted ongoing cyclical challenges for discretionary products, including the high-interest-rate environment, which is impacting consumer confidence. I’m seeking some contrarian insights here; there are times when investors hunt for those blood-in-the-streets stories, where negative headlines can create the opportunity for long-term investments.

The issue is that the market usually does a decent job of valuing companies, and contrarians can sometimes appear quite unwise in the aftermath. What advice could you provide to someone considering a contrarian approach while observing these trade wars unfold, perhaps pondering investing in a challenging scenario?

Bill Barker: I would advise against viewing Harley as a dumpster fire, even though the market is indeed pricing it as such with a PE ratio around 7-8. This is a company with a storied history and a product that remains relatively relevant. It’s not going to disappear like a company such as Kodak, where you see its product diminishing over time. Even if it’s trading at a low PE, circumstances could worsen significantly. The challenges facing the company right now seem to be more temporary. I can’t predict the future of tariffs, but I don’t foresee their product becoming significantly less appealing to consumers year after year. They have a $1 billion stock buyback authorization in place. If they are purchasing their shares, it would signal that management finds value in the stock.

Ricky Mulvey: That buyback authorization represents about one-third of the company’s overall market value currently. Now, let’s shift our focus to the OpenAI story, which has just completed a $40 billion funding round. Congrats to Sam Altman and his team; this fundraising has now valued the hybrid nonprofit at $300 billion, making it the highest amount raised by a private tech company, led by Softbank with a $30 billion commitment. This company is undeniably one of the hottest globally. If Masa Son from Softbank reached out and said, “Hey, Bill, do you want to contribute to this funding round?” Would you be interested in acquiring shares at a $300 billion valuation?

Bill Barker: The fact that Masa Son is interested at this price wouldn’t be enough for me to act. While he has made some excellent and some dreadful investments, I don’t foresee this being one of the terrible ones. However, whether I would select this over alternatives is a question I wrestle with, as I don’t have insight into their financials against other competitors. For instance, Google is available at 20 times earnings right now with a portfolio that encompasses many similar investments and capabilities. While not purely an AI play, it competes in this space and might offer more interesting insights depending on your investment style. If OpenAI goes public soon, it will be captivating to observe its valuation, but I see a lot of value there, yet it’s hard to quantify.

Ricky Mulvey: What pivot are OpenAI investors counting on? According to CFO Sara Fryer, roughly 75% of OpenAI’s revenue comes from consumer subscriptions, at $20 per month, enabling users to create impressive videos and use enhanced question-asking capabilities. However, it seems investors are not banking on this as a subscription business. What shift are they anticipating with OpenAI?

Bill Barker: There’s a tremendous amount of uncertainty regarding how much revenue will stem from enterprise versus consumer applications. Investors appear eager to embrace the potential infinite value AI could create, believing OpenAI will capture a significant portion of that. However, predicting these outcomes remains uncertain for anyone involved. The enterprise application of AI, including Agentic AI and beyond simple prompts, could be key to achieving the $300 billion valuation.

Ricky Mulvey: Once AI agents can act on our behalf, we might see scenarios where your AI agent discusses podcast arrangements with my AI agent, yet if one of us has a vacation planned that the other is unaware of, complications could arise. We’ll see how this unfolds. Thank you for your time and insights, Bill.

Bill Barker: Thank you for having me.

Jane Perles: Having served as a foreign correspondent for many years, I’ve reported from numerous significant locations, none as crucial to global affairs as China. Yet today, few journalists can bring forth the inside narrative. That’s largely due to the stringent control authorities exercise over the media. I’m Jane Perles, the former Beijing Bureau chief for the New York Times. On “Face Off: the US versus China,” we strive to penetrate these barriers. We discuss topics from Trump and Xi Jinping to AI, TikTok, and Hollywood. Tune in for new episodes of “Face Off,” available wherever you get your podcasts.

Ricky Mulvey: Coming up next, Alison Southwick and Robert Brokamp share some strategies to strengthen your finances against a recession.

Alison Southwick: The risks of recession are increasing. Looming trade wars, rising layoffs, declining consumer confidence, and stock market corrections have understandably left Americans feeling uneasy. Google Trends indicate searches for “recession” are at their highest levels in the past decade. These concerns have surfaced in recent headlines, such as “A recession may be on the horizon, it’s not too late to prepare,” according to USA Today, or “CNBC predicts recession before the end of 2025,” reflecting a generally pessimistic outlook among corporate CFOs. In fact, my go-to indicator is generally pessimistic corporate CFO sentiment. One more example? “Stocks plunge, bonds and gold thrive as tariffs ignite recession fears,” as reported by Reuters. Of course, many facets of the economy are still progressing well. A recession within the next year or two isn’t guaranteed; Goldman Sachs estimates the chances of one occurring in the next 12 months at 35%. While this isn’t a reassuring figure, it’s still under 50%. Ultimately, a recession is inevitable, as we haven’t mastered eliminating boom and bust cycles.

Robert Brokamp: Now, let’s delve into recession history. It’s commonly believed that a recession is defined as two consecutive quarters of declining GDP, but that isn’t the official definition. It certainly indicates a slowdown, but we cannot definitively ascertain when an official recession commences or concludes until the National Bureau of Economic Research provides its determination. The NBER is a private nonprofit entity consisting of over 1,800 economists who ultimately declare when a recession begins and ends. They have tracked recession data dating back to 1854. Since then, the US has faced an average recession every five years. However, we’ve also witnessed more than a decade between two of the last three recessions. On average, recessions last about 17 months, but since 1945, this average has shrunk to just ten months. The last two downturns illustrate extremes; the recession from 2000-2009 lasted 18 months, marking the longest downturn since the Great Depression, while the most recent, triggered by the 2020 pandemic panic, only lasted two months—the briefest recession on record.

Alison Southwick: Recessions can influence many aspects of your finances, but not always in detrimental ways. Here’s a general overview of how a recession typically impacts different areas of the economy and your finances. To start, stocks tend to decline.

Robert Brokamp: Correct. The stock market is regarded as a leading economic indicator, usually dropping several months before an official recession kicks off, and stocks often recover prior to the end of the recession, although not always. Many investors think they can hold onto cash on the side and wait for economic recovery before re-entering the market, yet this strategy may cause them to miss significant gains during market rebounds. According to Truist’s CFO Keith Lerner, the median recession-related decline in the S&P 500 since 1948 has been 24%, while sectors typically holding up well during recessions include consumer staples, utilities, and healthcare.

Alison Southwick: Another common occurrence during a recession is an increase in interest rates.

Robert Brokamp: Indeed. Both the bond market and the Federal Reserve respond to recessions by lowering interest rates. However, if inflation remains high or escalates during an economic downturn—termed stagflation—interest rates might actually rise, as seen during the 1973-74 recession. Interest rates have already begun to taper this year, and although the Federal Reserve maintained rates in their most recent meeting, they indicated potential cuts in the upcoming months. If rates continue to diminish, it could be wise to secure current rates by investing in CDs or bonds. Depending on the eventual rate landscape, a recession may also provide an opportune moment to refinance loans, such as mortgages.

Alison Southwick: Interest rates typically decrease while bond prices increase.

Robert Brokamp: Exactly. Bond prices move inversely to interest rates; if rates decline, bond prices generally rise. There is often a flight to safety during recessions, wherein individuals sell stocks and buy bonds, further boosting bond prices. This trend is already evident, with the Vanguard Total Bond Market ETF having risen 3% year-to-date—though modest, it’s a decent return over three months in the bond market. However, the quality of bonds is crucial; Treasuries usually perform well in a recession, while investment-grade corporate bonds tend to have mixed results. Riskier assets, such as junk bonds, often decline in value alongside stocks during a recession, albeit sometimes not as significantly—around 10-20%. To preserve wealth during downturns, consider FDIC-insured cash and Treasuries, supplemented with diversified bond funds that include government-backed and investment-grade bonds.

Alison Southwick: How do home prices behave? Generally, they hold their value well.

Robert Brokamp: Yes, home prices have only dropped during two of the six recessions since 1980, and even one of those experienced a negligible decline of less than 1%. Research from Mark Holbert at Market Watch indicates that from 1952-2018, home prices grew at a greater rate during bear markets for stocks than in bull markets. Many individuals may be thinking of the 2007-2009 recession, which witnessed declines in both stocks and home prices. However, historically speaking, that was an anomaly. Real estate can serve as a hedge against stock market volatility and inflation. Yet, as the saying goes in real estate, location is everything. For example, during the oil crash of the 1980s, home prices in Texas suffered significantly. As someone residing in the DC suburbs of Northern Virginia, I am particularly curious to see how home prices in this area respond, given the layoffs of federal employees and cancellations of government contracts.

Alison Southwick: Another economic factor that usually worsens during recessions is the unemployment rate.

Robert Brokamp: Historically, the unemployment rate rises by about three percentage points during a recession, but during the 2007-2009 recession, it doubled, skyrocketing from 5% to 10%. Individuals were out of work for an average of six months, which emphasizes the vital importance of having an emergency fund equivalent to around six months of living expenses. The pandemic triggered an unprecedented spike in unemployment, rising from 3.5% to 14.8%. For those far removed from retirement, job loss represents a considerable recessionary risk. While a portfolio decline might be manageable, losing employment can be devastating. This highlights the importance of bolstering your professional value, maintaining your network, and ensuring your skills are current in anticipation of potential job market shifts.

Alison Southwick: If you manage to avoid the job market, you might be concerned about employee benefits. Generally, workplace benefits either plateau or diminish.

Robert Brokamp: Yes, those fortunate enough to retain their positions may still experience cuts to their overall compensation packages during a recession. Raises and bonuses become scarce. Organizations facing difficult times may also reduce salaries and benefits. Future company events may shift from restaurants to office conference rooms, and other perks could be curtailed. For instance, about 10% of companies reduced or eliminated their 401(k) matching contributions during the pandemic, and nearly 20% did so during the Great Recession of 2007.

Alison Southwick: To conclude this litany of negative news, there’s a glimmer of hope: inflation tends to decline during recessions.

Robert Brokamp: If there’s a silver lining to a struggling economy, it’s that the cost of living tends to stagnate or decrease. Consumers typically curtail spending amid a recession, prompting businesses to lower prices to attract customers. If you have the financial means, possessing a job, and some savings, a recession could present a prime opportunity for significant purchases—like a new car or household appliances. However, those of us with memories of the 1970s stagflation remember that prices can rise even in a declining economy, and this concerns me today, especially considering potential tariffs that may spur inflationary pressures.

Alison Southwick: Let’s bring this discussion to a close. What’s the overarching takeaway on recessions?

Robert Brokamp: To prepare your finances for a potential recession, it’s wise to begin with standard yet vital advice: safeguard any funds you may need in the next few years by keeping them in cash or short-term bonds. Additionally, now is an excellent time to review your budget, trimming unnecessary expenses, and reallocating those funds to bolster your emergency fund. Furthermore, it’s essential to demonstrate your value to your employer and customer base, maintaining your professional network while keeping your skills sharp for any potential market changes. For individuals nearing or in retirement, the primary concern is likely your portfolio, as you will soon be drawing on it like your paycheck. This makes asset allocation and diversification even more crucial. Start by building a stable income reserve, ideally enough to cover five years’ worth of income in cash or short-term bonds. It’s also critical to own a diversified array of stocks, ideally at least 25. Some may prefer a larger number, and including index funds is beneficial. Investing in growth-oriented stocks remains possible, but ensure a solid base of dividend-paying consumer staples to mitigate risk associated with putting too much into any single sector.

Alison Southwick: Lastly, let’s not forget that every recession has eventually been followed by an economic recovery. They don’t last forever. Eventually, unemployment will decrease, corporate gatherings will revert to fancy events, and the stock market will reach new highs once more.

Ricky Mulvey: One last note: Although today is April Fool’s Day, I have something sincere to share. My time with The Motley Fool is coming to a close, making today my final episode of Motley Fool Money. As many of you know, Bro and I, with Rick behind the proverbial glass, have been podcasting together for more than ten years. This journey began with the Motley Fool Answers podcast back in 2014. Thanks to Bro, I’ve learned an immense amount about finance, surpassing what many are likely to know. I’m hopeful we’ve made a positive impact over the years, as reflected in the hundreds of postcards we’ve received. Thank you to Bro, Rick, Ricky, and our many dedicated listeners. Farewell, and thank you for all the stocks.

Robert Brokamp: Alison, I’d like to add my own sentiments. Working with you, Rick, and producing this podcast has been one of the highlights—and likely the highlight—of my career. You are intelligent, humorous, hardworking, and have a big heart. And of course, you love Star Wars and Christmas songs. I know I speak for our many listeners when I say thank you profoundly; you will be missed, and we wish you nothing but the best.

Alison Southwick: Thanks, buddy. Rick, are you tearing up?

Ricky Mulvey: I am.

Alison Southwick: You’ll be alright!

Ricky Mulvey: As always, the participants in this program may have stakes in the stocks discussed, and The Motley Fool may have formal recommendations regarding the buying or selling of stocks. Base your investing decisions solely on what you hear here. All personal finance discussions adhere to The Motley Fool’s editorial standards and have not been endorsed by advertisers. The Motley Fool exclusively selects products they would recommend to friends like you. I’m Ricky Mulvey. Thank you for tuning in, and we’ll see you next time.

Suzanne Frey, an executive at Alphabet, is part of The Motley Fool’s board of directors. Alison Southwick holds no positions in the stocks mentioned. Bill Barker has positions in Alphabet. Ricky Mulvey holds no shares in the stocks mentioned. Robert Brokamp has holdings in Vanguard Total Bond Market ETF. The Motley Fool has positions in and recommends Alphabet and Vanguard Total Bond Market ETF. The Motley Fool also recommends Bayerische Motoren Werke Aktiengesellschaft. The Motley Fool maintains a disclosure policy.